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22 February, 2023

Sustainable social protection systems: existing and new challenges – IOE – February 2023

This report, published by the International Organisation of Employers (IOE), the body that represents companies in debates on social policies and employment at the International Labor Organization (ILO), summarizes the global state of social protection systems and presents the future challenges and opportunities they face.

The first section describes Social Protection Floors (SPFs), which are part of the ILO’s work to promote social protection around the world. This is followed by an overview of the state of social protection benefits and spending globally, highlighting the impact of COVID-19 and the remaining coverage gaps. Section 3 raises the debate on the opportunities and constraints in increasing investment in social protection and emphasizes the problem of the informal economy. Section 4 focuses on pensions, which represent a structural challenge for PPS. Section 5 explores the new challenges that digitization and the platform economy pose to current systems and looks at current debates on how to address this issue. Finally, section 6 examines different innovative experiences that have been implemented around the world and that can work as pre-established programs for other countries.

In chapter 4 “Structural challenges: Pensions” (pages 11-12), the main messages are:

1.- The best way to deal with the unsustainability of pension systems is to base at least part of their financing on individual capitalization, the advantage of which is that while pay-as-you-go systems are financed solely through contributions, in capitalization systems resources come predominantly from investment returns.

2.- Given that individually funded pension systems increase the level of savings, they have had positive macroeconomic effects, giving rise to a higher GDP, growth in employment and wages and, therefore, have increased the resources available to finance pensions.

3.- In order to face the demographic challenge and make pension systems more sustainable, countries around the world have totally or partially migrated towards capitalization mechanisms, going from 17 countries in 1999 to 46 in 2022.

We are glad that the ILO has opened up to a debate on individually funded pension systems.

Download the full report here.

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